The chart is your main source of information about the current price

One of the most basic basics of technical analysis is watching price charts. There are three common types of charts used by Forex traders and these are line charts, bar charts or open-high-low-closed charts, and candlestick charts.

Line chart

The line chart is the simplest of the three, with the line linking price actions from one closing price to the next. This allows the trader to judge the overall direction of the price action, regardless of whether the exchange rate is trending higher or lower.

A bar chart

The bar chart, which is also called the OHLC (open, high, low, close) chart, is a little more complicated. Each bar shows the opening, high, low and close of the price depending on the time frame used.

As you zoom in on each bar, the horizontal line on the left indicates the opening price for the period and the horizontal line on the right indicates the closing price. The highest point of each bar is the maximum of the period and the lowest point is the lowest.

Candlestick chart

Finally, the candlestick chart is most used by Forex traders. As with the OHLC chart, the candles also indicate the opening, high, low, and close of a price action during the period.

What distinguishes candlestick charts is the fact that the bars have a solid color, which makes it easier to visualize whether the price has increased or decreased during a given period. When the price has closed above the opening price in a certain period, the candle is white or green. When the price has closed below the opening price in a given period, the candle is black or red. This way, Forex traders can get a clearer picture of whether buying or selling pressure is increasing.

In addition to providing a quick indication of bullish or bearish momentum, Japanese candlesticks also have patterns that act as reversal or continuation signals. These patterns can take the form of single candles or in groups of two or three. In the next section, we will discuss candlestick patterns, which are also a major component of modern technical analysis.